The Relevance of Asian Development Bank
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Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
The Relevance of Asian Development Bank: Existing in the Shadow of the
Asian Infrastructure Investment Bank
Abstract:
This paper analyses the potential impact of the China-led Asian Infrastructure Investment
Bank (AIIB) on the Japan-USA-led Asian Development Bank (ADB). Given the financial
strengths and the technical know-how of the newly formed AIIB there is a question about the
future role and indeed relevance of the ADB. The questions canvassed in this article refer to
ADB’sΝ abilityΝtoΝ changeΝandΝadaptΝ toΝ theΝnewΝsituation,Ν whereΝitΝisΝ noΝlongerΝtheΝdominant
multi-lateral development bank (MDB) in the Asia-Pacific region. Against this background
the discussion turns to issues concerning the geo-political sphere of influence of the ADB and
AIIB and analyses the ADB – AIIB geo-political equilibrium in the Asia-Pacific region.
SubsequentlyΝthisΝpaperΝdiscussesΝfactorsΝthatΝmayΝimpactΝonΝADB’sΝfutureΝrelevance.Ν
Keywords:
Foreign Aid, Development, Development Bank, Asian Infrastructure Investment Bank, ADB,
Asia, Geopolitics.
JEL Subject Descriptors:
O190 International Linkages to Development
F35 Foreign Aid
Professor Viktor Jakupec1 and Dr Max Kelly2
1
Professor Jakupec: Honorary Professor, Faculty of Arts and Education, Deakin University, Warrnambool,
Australia. Email: viktor.jakupec@deakin.edu.au
2
Dr Max Kelly, Senior Lecturer, International and community Development, Faculty of ARts and Education,
Deakin University, Warrnambool. Email: max.kelly@deakin.edu.au
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
1.
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Introduction
In March 2015 PR China announced the de facto formal inauguration of the Asian
Infrastructure Investment Bank (AIIB). From its beginnings AIIB has been seen by many
(Reisen 2015; Mathew 2015; Wolf and Rogarowsky 2015; Garcia-Herrero and Casnova
2015) as a competitor to the traditional Washington-based (Bretton Woods) financial
institutions, namely the International Monitory Fund (IMF) and the World Bank (WB)
including its member institutions such as International Bank for Reconstruction and
Development (IBRD) and the International Finance Corporation (IFC).
However, since the China-led AIIB has not declared any ambition to operate beyond
Asia-Pacific, the competition will be contained within this region. To restate, although AIIB
may become a competitor for the above mentioned IMF, WB, IBRD and IFC, its impact will
potentially be geo-politically limited. However, the same may not hold true when it comes to
the Japan-USAΝ ledΝ AsianΝ DevelopmentΝ BankΝ (ADB).Ν TakingΝ intoΝ considerationΝ China’sΝ
economicΝpower,ΝtheΝsurgeΝforΝmembershipΝfromΝmajorΝeconomiesΝandΝChina’sΝgrowingΝgeopolitical influence, there is a serious question about the future relevance of ADB, perhaps
signalling the end of the Japan – USA hegemony in the Asian development investment arena.
The Japan – USA hegemony governing the ADB enabled it to become an effective
ally of the above mentioned Bretton Woods institutions and to operate alongside these in joint
development aid agendas and geo-political self-interestsΝ ofΝ both,Ν theΝ USAΝ andΝ Japan’sΝ
governments. Under the current governance and economic ideologies ADB became a
significant player in the Asia-Pacific development aid arena, in particular Official
Development Assistance (ODA).
There is widespread agreement among regional development specialists and
commentators that since the establishment of the AIIB in 2015 China will assertively advance
in the Asia-Pacific infrastructure aid arena (e.g. Raby 2015; Goodman, 2015; Chanda, 2015).
Having established an international membership beyond Asia-Pacific, it is currently in the
process of finalising its various structures, policies and procedures necessary for its
administration.
In thisΝ articleΝweΝwillΝoutlineΝtheΝbackgroundΝofΝ AIIBΝformation,ΝandΝcanvasΝADB’sΝ
ability to change and adapt to the new situation, where it is no longer the dominant multilateral development bank (MDB) in the Asia-Pacific region. Against this background we will
discuss the geo-political sphere of influence of the ADB and AIIB respectively with a focus
on potential equilibrium between these two MDBs in the Asia-Pacific region. Subsequently
thisΝpaperΝdiscussesΝfactorsΝthatΝmayΝimpactΝonΝADB’sΝfutureΝrelevance.
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2. AIIB: An Introduction
The AIIB was officially launched on 24th October 2014 in Beijing. Its purpose is to provide
infrastructure project loans to developing countries within the Asia - Pacific region. It will
focus on energy, transportation, telecommunications and other infrastructures. The
headquarters are to be in Beijing and is envisaged that AIIB will be operational by the end of
2015. However, much is still to be accomplished, such as establishing and agreeing on a
Charter. The Articles of Agreement are expected to be ready for signing in June 2015 nd the
Bank operational by the end of 2015 (http://www.aiibank.org/html/aboutus/AIIB/).
AIIB’sΝfoundingΝmembershipΝconsistsΝofΝ5ιΝregionalΝandΝnon-regional economies and
includesΝ 16Ν ofΝ theΝ world’sΝ 20Ν largestΝ economies.Ν ConspicuouslyΝ absentΝ areΝ firstΝ andΝ thirdΝ
largest economies namely U.S.A. and Japan, and the 11th and 15th largest economies namely
Canada and Mexico respectively (World Bank, 2015a).
Reportedly, founding members will initially contribute up to one-fifth of the AIIB's USD50
billion authorized capital. This will eventually be raised to USD100 billion, which is about
ι0%ΝofΝADB’sΝsubscribedΝcapitalΝofΝapprox.ΝUSDΝ160ΝbillionΝ(seeΝADBΝ2015).
Non-regional countries will be restricted to hold a total of 25 % of AIIB shares. That
leaves China and other Asian economies with 75%, which shall be distributed on a basis of
the member economic size. This means that as China as the largest Asian economy and the
absence of Japan as the second largest Asian economy, the former, by default will receive the
single largest share quota. In other words although each Asian member would be allocated
their share of 75%, China will hold power, whereas the Germany, UK, France and Italy would
receive the largest share quota from the 25% quota allocated to non-Asian member
economies.
The exact method to determine the proportional allocation of national shareholdings
had yet to be agreed to. The distribution could be based on a country's nominal GDP or its
GDP calculated on a purchasing-power-parity (PPP) basis, or a combination of these two.
PPP would give more weight to developing rather than to developed. Since the majority of
75% of shares will go to developing countries it will make little difference as far as China is
concerned.
The formation of the AIIB has to be seen in the context of discontent of significant
economies, and in particular BRICS (Brazil, the Russian Federation, India, PR China and
South Africa) countries with lack of reform within Bretton Woods institutions and the IMF in
particular.Ν Ν InΝ 2013Ν theΝ LeadersΝ ofΝ theΝ BRICSΝ approvedΝ theΝ establishmentΝ ofΝ theΝ ‘NewΝ
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
34
DevelopmentΝ BankΝ (NDB)’Ν (informallyΝ theΝ BRICSΝ Bank).Ν ThisΝ operatesΝ onΝ aΝ moreΝ globalΝ
platform and is therefore beyond the scope of this article. The AIIB is a further contribution to
a significant shift away from the Washington domination of development funding and
investment in infrastructure, and in the eyes of some, a direct threat to the hegemony of the
US dollar system in world financial flows (Totten, 2015). However, either way China will
have support, contribution and input from major Western European countries for the AIIB, as
well as from all the founding members of the New Development Bank (NDB), and at the
same time, China will have the largest shareholding.
OnΝ theΝ basisΝ ofΝ China’sΝ AIIBΝ shareΝ quota,Ν theΝ significantΝ numberΝ ofΝ importantΝ
economies that have joined AIIB and the potential support from the NDB it could be argued
that forΝ allΝ intentionsΝ andΝ purposes,Ν AIIBΝ isΝ anΝ instrumentΝ forΝ China’sΝ questΝ forΝ itsΝ geopolitical sphere of influence. As the second largest global economy it is positioning itself geopolitically as not only to compete with ADB and WB but also to prevent them from
expandingΝ furtherΝ withinΝ China’sΝ primaryΝ geo-political sphere of influence, namely Asia Pacific. (Rudolf, Huotari and Buckow, 2014)
3. Quest for the geo-political sphere of influence
Despite the strong pressure exerted by the USA on its allies to desist joining the AIIB, a
significant number of countries have joined. Among the USA traditional allied countries who
became AIIB founding members are Australia, France, Germany, Italy, UK, New Zealand,
most of the Gulf countries, a number of MENA countries, and South Korea, to name but a
few. The USA objections did little to curb the number of applications for founding
membership of AIIB (Perlez, 2014). At the closure of application for foundation membership
AIIB had accepted 57 countries and founding members. It is envisaged that other countries
will join as ordinary members.
Furthermore, it is worth mentioning that 37 of 67 ADB member countries have joined
the AIIB (see ADB 2014). The notable exceptions are Japan and USA. In addition there are
20 other non-ADB member countries that have joined AIIB as founding members bringing
the total AIIB founding member countries to 57. (see Huang 2015). Given the significant
number of dual membership the unanswered question of how long will there be a political,
financial and economic incentive for individual countries to contribute to both the AIIB and
ADBςΝ ThereΝ areΝ twoΝ questions.Ν Firstly,Ν givenΝ theΝ currentΝ ‘aid-for-trade’Ν andΝ ‘value-formoney’ΝagendasΝamongstΝ manyΝdonorΝcountries,ΝthereΝisΝ aΝquestionΝofΝwhetherΝexisting and
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future pledges of support to the ADB will be undermined by pledges to the AIIB and will
support equilibrium between ADB and AIIB be established and maintained by dual member
countries? In other words, will ADB member countries decrease their support to ADB, for
example through co-financing of infrastructure projects and reallocate their funding towards
the AIIB? The answers to these questions are to be seen.
Let us briefly turn to the membership issues. It may be noteworthy that Japan is
virtually the only major Asian economy, which has not applied for AIIB membership. In fact
Japan has pledged a whopping $110 Billion to Asian Infrastructure development (exceeding
the capitalisation of the AIIB by $10 Billion) of which around half will go to the ADB
(Kihara and Seig, 2015). Others, such as Taiwan lodged an application, but were rejected.
There may be of course the opportunity for Taiwan and others to join at a later date as an
ordinary member country. Other non-AIIB Asia-Pacific countries, which have not applied
include Iraq, Syria, Afghanistan and Yemen (perhaps due to major political and civil unrests),
and Turkmenistan, which has never aspired to be a member of any multilateral organization.
In addition there are three Asian–Pacific countries which did not apply. These are Papua New
Guinea, Fiji, Bhutan and Timor-Leste, ranking according to WB GDP tables as the worlds
116thth, 157th, 168th and 174th economies respectively (see World Bank 2015b). Absent from
the AIIB membership are also Kiribati (ranked 191), Marshal Islands (ranked 190),
Micronesia Federated States (ranked 187), Palau (GDP ranked 198), Samoa (ranked 181),
Solomon Island (ranked 176), Tonga (ranked 186) and Vanuatu (ranked 180), all of which are
ADB member countries. By not joining the AIIB, Japan and its allies may have isolated
themselves from having any influence in the AIIB. Of course the counterargument may be
that Japan may have strengthened its hold on the ADB.
However speculative, and as stated above it may be argued that AIIB is an instrument
ofΝ interventionΝ byΝ ChinaΝ asΝ theΝ world’sΝ secondΝ largestΝ economyΝ toΝ keepΝ theΝ traditionalΝ aidΝ
agencies such as ADB, WB and IMF at bay and to prevent them from expanding further
withinΝChina’sΝprimaryΝgeo-political sphere of influence, namely Asia – Pacific. AIIB is also
a potential instrument for China to receive strong support from the AIIB member economies
to include the Yuan in the IMF's currency basket so as to reflect its economic strength on the
world stage.
Thus the formation of AIIBΝisΝhighlyΝsignificantΝforΝChina’sΝgeo-political influence in
the Asia-Pacific region. The motives are both economic and political. The former is based on
Asia’sΝ economicΝ growth.Ν ThatΝ isΝ toΝ attainΝ itsΝ fullΝ economicΝ capacityΝ AsiaΝ requiresΝ overΝ theΝ
next 10 years infrastructure investment of about USD 1 trillion annually. It is questionable if
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
36
the WB or the ADB can begin to meet these targets due to a lack of capital and lack of
expertise. On the other hand, there is a potential that China, based on the experience and
achievement in building its own infrastructure in an unprecedented short period of time, may
be able to do it. Furthermore, China has the world largest foreign exchange reserves,
approximately four trillion USD (Trading Economics 2015).
As far as political motivation is concerned, China is cognizant of the advantages that
mayΝemergeΝfromΝleadingΝaΝregionalΝinfrastructureΝ‘project’ΝonΝsuchΝanΝenormousΝscale.ΝChinaΝ
will gain massive strategic politico-economic advantages in terms of consolidating its position
asΝAsia’sΝeconomicΝcentreΝasΝwellΝasΝadvancingΝitsΝcredentialsΝasΝAsia-Pacific’sΝgeo-political
leader. This has been a generally recognized as an important goal of China. (Pongsudhirak,
2014; Shambaugh, 2013) and is evident from the reactionΝofΝtheΝUSAΝandΝJapanΝtoΝChina’sΝ
ambition to establish the AIIB. That is, USA is very much cognizant how much its leading
role in the WB and its influence in the ADB contribute to its strategic and political interests in
Asia-Pacific. Both USA and Japan understand fully that China, through AIIB, may challenge
their economic and political primacy in Asia-Pacific and at the same time enabling China to
take a greater share of regional politico-economic leadership. This is precisely, what the USA
and Japan tried to avoid [Westergaard and Wade 2013].
Assuming that AIIB will challenge the Japan-led ADB supremacy as the major aid
lenders in the region, the question is how will ADB respond not only immediately and in the
medium term but also and more importantly in the future? More imminent is the question how
the USA and Japanese governments will respond through their instrumentalities, namely ADB
and what affect it may have on the developing nations in the region?
As an immediate response by refusing to join the AIIB both USA and Japan forfeited
their opportunity to participate in the governance of this new institution. Subsequently they
jeopardiseΝtheirΝownΝandΝADB’sΝabilityΝtoΝshapeΝtheΝAsian-Pacific development agenda to the
same extent as it was possible in the pre-AIIB era. Furthermore by refusing to join the AIIB,
Japan and USA may have excluded their private enterprise to participate as contractors in
AIIB funded projects. Given this situation, China, through the AIIB, appears to be well on its
way to extend and strengthen its geo-political sphere of influence.
4. The Question of an AIIB - ADB Equilibrium in the Asia-Pacific Region
The ADB President stated that the ADB faces a number of internal and external challenges.
(ADB News Release, 2015). Perhaps the biggest external challenge is the formation of the
AIIB. In order to maintain equilibrium, ADB needs to make important strategic and
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operational decisions. But most importantly ADB needs to focus on its relevance vis-à-vis
AIIB. The important question is under what conditions can ADB retain its current relevance
in light of the AIIB? To put it differently under which conditions can ADB and AIIB
successfully co-exist?
Having recognized the importance of AIIB, the ADB took the initiative and
announced that it is looking forward to co-operating with AIIB. (Pollmann 2015). There are
two issues, which need to be taken into account. One, there is no clear indication what type of
co-operation the ADB has envisaged and under which conditions. Two, whatever cooperation may be envisaged, it stands to reason that ADB will have to adjust by taking into
consideration the political and economic agenda of the AIIB. In other words, it is highly
unlikely that the AIIB will adjust to placate the ADB, thus the onus is on the ADB.
Our thesis is that although it could be argued that ADB will adjust and co-operate with
AIIB, there are three assumptions speak against this. Firstly co-operation will require ADB to
be flexible to accommodate AIIB development aid approaches. ADB may not be able to
maintain its existing stringent aid governance structure. Second, ADB usually follows the
BrettonΝWoodsΝinstitutions’ΝdevelopmentΝaidΝagendas.ΝTheseΝmayΝnotΝbeΝacceptableΝtoΝAIIB.Ν
Third, it is highly unlikely that a China-led AIIB will embrace a neo-liberal economic
ideology embraced by the ADB.
Although the first assumption is an ADB internal matter, which may be resolved, the
other two assumptions are externally governed ideological paradigms and thus inter-related.
To harmonise these two with the ideological paradigms governing the AIIB may prove to be a
difficult,ΝifΝnotΝanΝinsurmountableΝproblemΝforΝtheΝADB’sΝdesireΝtoΝco-operate with AIIB.
The ‘flexibility’ factor
ADB’sΝinternalΝorganizationalΝandΝexternalΝaidΝgovernanceΝstructures do not well support an
argument for flexibility. The ADB differs from other MDBs in many aspects. One important
one is that ADB has distinct Japanese organizational features and culture. This is in stark
contrast with most other MDBs, which ascribe to Western management and organisational
culture. There is evidence that ADB (a) has a strong bureaucratic and rigorous hierarchical
organisation structures modelled to a large extent on Japanese Ministry of Finance (OkanoHeijmans and Waardenburg 2014); (b) rigid lending terms and eligibilities; (c) intransigent
engagement with those borrowers, whose economic achievements have not reached their full
potential.Ν InΝ shortΝ thereΝ areΝ signsΝ ofΝ inflexibilityΝ withinΝ ADB’sΝ organisationalΝ culture,Ν
governance, management and administration (Birdsall, Morris and Rueda-Sabater 2015)
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
38
From this standpoint it could be argued that ADB lacks the flexibility required to
coexistΝwithΝAIIB.ΝToΝputΝitΝdifferently,ΝthereΝisΝaΝneedΝtoΝacknowledgeΝthatΝADB’sΝprinciplesΝ
and the objectives of its policies have served the developing countries in the region
successfully. Its current strategies and structures, based on stringent sets of procedures may
not be an effective way to co-exist with AIIB with its potentially less rigorous approaches and
strategies.
ADB and the predominance of the Bretton Woods agenda
To be sure, the Bretton Woods system includes the WB, the IMF, and the World Trade
Organization (WTO). Although ADB is not part of the Bretton Woods institutions, it has
followed to a large extent the Bretton Woods agenda.
Our thesis is that over the last seven decades the Bretton Woods paradigms have
significantly contributed to the advent and maintenance of political and economic positions in
which developing countries globally verge on colonies of the global financial and corporate
interests. Developing nations find themselves continually depend on economic and other
ODA assistance that extend and enforce their dependency on the same institutions that impose
conditionality to their own benefit, usually irrespective of the developing nations societal,
economic and political needs. Such dependence may weaken the recipient countries relative
economicΝpositionΝinΝrelationΝtoΝpowerfulΝMDB’s.Ν(HudsonΝ2005νΝHarvey,Ν19κ9).Ν
Thus we maintain that since ADB is by virtue of the dominant Japan-USA hegemony
lock-stepped with the WB, it follows, or needs to follow the Bretton Woods agenda. As such
ADB holds significant and unfettered economic and politico-economic influence over the
governments of borrowing countries. Like the Bretton Wood institutions, which have global
monopoly, ADB has rarely, if at all, been confronted by competition. If this stands to reason
than it could be argued that in light of the AIIB, there is a potential dilemma for ADB. The
problemΝ forΝ theΝ ADBΝ isΝ thatΝ AIIBΝ couldΝ challengeΝ theΝ standardsΝ thatΝ theΝ BrettonΝ Woods’Ν
institutions have established over the last 70 years.
However with the emergence of the AIIB a competitive environment for ADB has
been created. Not being used to competition, it is uncertain how ADB will react. The
transition from a status of monopoly as a regional MDB to a competitive MDB organisation
will be a challenging undertaking, which requires flexibility and change of the organisational
culture.
The problematic as we see it is that although institutions that follow the Bretton Woods
agenda impose the neo-liberal paradigm of competition and free-market enterprise on others,
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Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
they do not allow or at least resist any insurgence into their monopoly status. It could be
argued that AIIB will challenge and provide alternatives to the Bretton Woods paradigm.
The clash of economic ideologies
If our argument, that the China-led AIIB will challenge and offer alternatives to the neoliberal agenda of the Bretton Woods institutions and their followers, such as the ADB, it
stands to reason then there is a potential of a clash of economic ideologies. To be sure,
Bretton Woods institutions such as the WB, IMF and WTO, as well as ADB by association,
are stalwarts of neo-liberalism.
In contrast China and some other S-E Asian countries such as Vietnam embrace a
‘socialist market economy’.ΝPerhapsΝmoreΝtoΝtheΝpointΝisΝtheΝfactorΝthatΝsomeΝEuropeanΝAIIBΝ
memberΝ economiesΝ likeΝ GermanyΝ withΝ itsΝ ‘ordoliberalism’,Ν andΝ ‘Regulation Theory’
(Labrousse and Weisz 2001; Doyle, Martinez Arranz and Winand 2015) can be seen as a
basisΝforΝ‘socialist market economy’,ΝwhichΝareΝinΝstarkΝcontrastΝtoΝtheΝBrettonΝWoods’Νneoliberalism.
Considering that ordoliberalism and regulation theory is essentially a theory about
making a national economy work efficiently rather than about organising the global economy.
This allows developing countries to pursue economic policies and developments, which are in
their own national interests, rather than the MDBs neo-liberal global interests. To explain, the
fundamental theoretical basis of ordoliberalism and regulation theory is that governments
should, as necessary, interfere into markets in such a way that market outcomes mirror the
theoretical outcome in a competitive market. In essence it is based on liberal state
intervention.
Taking into consideration the above stated thesis that ADB is in lockstep with WB,
which is the stalwart of neo-liberalism in the foreign aid and development, it is difficult to
imagine that a useful collaboration between ADB and the AIIB will emerge, unless one or the
other changes its economic ideology. Whilst ADB is unashamedly embracing a neo-liberal
economic ideology, there is no indication that AIIB will follow suit. China and other member
countriesΝhaveΝembracedΝaΝ‘socialist market economy’ΝandΝthereΝisΝlittleΝindicationΝthatΝthereΝ
is significant common ground.
The economic ideology of the Western aid agencies, especially those build in the
image of Bretton Wood system, such as the ADB have shut out many aid possibilities, by
making aid conditions rigid, inflexible and marginally efficient in delivering what the local
population in recipient countries need. China's perspective is the exact opposite: Loan
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
40
decision should be readily and promptly attained if there is an authentic need on both, the
donor’sΝandΝtheΝrecipient’sΝsides.
5. The ADB Relevance Factor
The above analyses raise the question about what ADB can do to retain its relevance in AsiaPacific region, whilst it is stuck between the WB as its major partner and AIIB as the new
competitor? AIIB and WB are after all two utterly different identities with different economic
ideologies and agendas. There is no simple answer to this question. On the one hand ADB has
already announced that it would like to collaborate with AIIB and on the other hand it remains
locked in with WB as its main partner. Thus can ADB continue to live and retain its current
relevance in a world of divided dependability? Is there a potential that one day in not too
distant future ADB will be forced to reveal where its cooperation focus lies? Given the
political constellation of the USA–Japan hegemony, which governs ADB, the most likely
scenario is that ADB will remain within the WB and Bretton Woods campus.
Furthermore,ΝtheΝpoliticalΝrealityΝunderneathΝADB’sΝgesturesΝofΝcooperationΝwithΝAIIBΝ
remainsΝaΝmajorΝissue.ΝJapan’sΝFinanceΝMinisterΝTaroΝAsoΝset,ΝatΝtheΝADBΝannualΝmeetingΝinΝ
Baku, Azerbaijan, a political agenda for the ADB, which has a direct impact on ADB-AIIB
relations.Ν TaroΝ AsoΝ foreshadowedΝ newΝ plansΝ toΝ increaseΝ Japan’sΝ fundingΝ forΝ infrastructureΝ
developmentΝ byΝ championingΝ Japan’sΝ plansΝ forΝ Asia-Pacific regional expansion. The
proposed plan according to Taro Aso is for Japan to harness the resources of the bilateral
Japan International Co-operation Agency (JICA) and resources from private enterprise, which
together will collaborate with the ADB by providing syndicated loans. (Bermingham 2015)
ADB cannot and will not move against the will of its political masters and thus such a
situation may well be encoded in the political atmosphere of possible competition, rather than
cooperationΝbetweenΝADBΝandΝtheΝAIIB.ΝAfterΝallΝADB’sΝallianceΝwithΝtheΝWBΝandΝtheΝUSA–
Japan hegemony has served it well. Thus it is foreseeable that the status quo will most likely
beΝmaintained.ΝADB’sΝdominantΝstrategyΝtoΝbeΝtheΝjuniorΝpartnerΝtoΝtheΝWBΝwillΝbeΝpotentiallyΝ
upheld.Ν TheΝ notableΝ changeΝ mayΝ beΝ ADB’sΝ accessΝ toΝ JICAΝ andΝ JapaneseΝ privateΝ enterpriseΝ
funds. Reinforcing the vision for the ADB, Taro Aso, was quoted as saying ‘We’re going to
promote a new initiative to encourage investments for quality infrastructure. We’ll also aim to
expand investments in infrastructure quantitatively.’ (Aso cited in Bermingham 2015) This
very much leads to the conclusion that ADB-JICA alliance will pursue competition rather
than cooperation with AIIB.
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Thus ADB is now entering a period of harsh realism facing the question of relevance
from within as much as from without. On the one hand the rhetoric from within its ranks
espoused by its President Takehiko Nakao about co-operation with AIIB is in strong contrast
ofΝtheΝplanΝchampionedΝbyΝJapan’sΝFinanceΝMinisterΝandΝDeputyΝPrimeΝMinisterΝTaroΝAso.Ν
Here ADB is wedged in between the vision of its President and the Chairperson of
ADB'sΝ BoardΝ ofΝ Directors,Ν andΝ Japan’sΝ planΝ forΝ futureΝ focusΝ ofΝ theΝ ADB.Ν TheΝ formerΝ isΝ atΝ
least rhetorically focusing on potential co-operation with AIIB the latter setting a scene for
competition between ADB and AIIB. InΝadditionΝthereΝisΝalsoΝtheΝthirdΝfactor,ΝnamelyΝChina’sΝ
realpolitik.
China’sΝrealpolitikΝseemsΝtoΝbeΝfocusedΝonΝusingΝtheΝAIIBΝtoΝadvanceΝitsΝownΝpoliticalΝ
and economic interests. But this is nothing unusual in the multi-lateral lending. After all ADB
is a witness to exploitation of power and a vehicle for strategic gains of Japan and USA. Let
us take a step back. It could be argued that China is seeking increased importance in the world
political and economic order. As such China requires and deserves geo-political space to
shape its own approach to global politico-economic leadership. If this means to leapfrog and
render existing agencies less relevant, so be it. If this stands to reason, then AIIB is just an
instrument – and not necessary the only one - China is using to secure its legitimate interests
as the second largest world economy.
There is another factor, which must be seen as problematic by the ADB, namely that
China has over years provided money for the developing countries not only in Asia, but also
the Pacific and Africa. However, since the focus of AIIB is on Asia-Pacific it enters into a
directΝregionalΝcompetitionΝwithΝADB,ΝwhichΝinΝturnΝbringsΝtoΝtheΝforeΝtheΝquestionΝofΝADB’sΝ
place in the Asia–Pacific region. Whatever the situation may be, ADB will be forced to reestablish itself in this new Asia-PacificΝaidΝ‘marketΝplace’.ΝThisΝrestitutionΝwillΝundoubtedlyΝ
beΝ influencedΝ byΝ theΝ AIIB.Ν ToΝ pretendΝ thatΝ itΝ willΝ beΝ ‘businessΝ asΝ usual’Ν mayΝ wellΝ leadΝ toΝ
ADB being rendered marginally relevant or even irrelevant. There are signs of such reestablishments.ΝADBΝPresidentΝTakehikoΝNakao,ΝannouncedΝtheΝmergerΝofΝtwoΝofΝtheΝbank’sΝ
majorΝfinancialΝinstruments,ΝnamelyΝtheΝmergerΝofΝtheΝADB’sΝAsianΝDevelopmentΝFundΝ(DF)Ν
lendingΝ operationsΝ (i.e.Ν ADB’sΝ concessional lending mechanism) with its ordinary capital
resources (OCR i.e. lending mechanism for middle-income countries at quasi market-rates).
This is in aid to better respond to the needs of a rapidly changing Asia-Pacific region as well
as for better responsiveness by the ADB to the needs of a precipitously changing Asia-Pacific
region. There is a full recognition within the ADB that there is a need for ongoing
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
42
transformation, including scaling-up ‘…operations, and development of a new strategy
beyond 2020.’Ν(ADBΝNewsΝReleaseΝ2015νΝADBΝ200κ).Ν
Perhaps more to the point is the question is why ADB and indeed the WB are opposed
to the AIIB and why China has formed the AIIB? Of course the answer to the latter part of the
questionΝisΝthatΝChina’sΝmotivesΝareΝin part economic and in part political. If the above stands
to reason, the geo-political and economic impact of the establishment of the AIIB cannot be
disregardedΝnorΝcanΝitΝbeΝsetΝasideΝasΝjustΝ‘another’ΝdevelopmentΝaidΝagency.Ν
6. Concluding Thoughts
It is evident from the above discussion that the ADB is taking notice of the impact that AIIB
may have on its future relevance. There certainly appears to be a wish within ADB for a
change in the wake of the AIIB. For example, ADB is talking about increased flexibility, and
less about changes to its alliance with the Bretton Woods agenda and almost nothing about
changesΝtoΝitsΝeconomicΝideologicalΝorientation.ΝTheΝquestionΝisΝperhapsΝnotΝoneΝofΝtheΝ‘wish’Ν
butΝmoreΝaboutΝtheΝpoliticalΝ‘will’ΝtoΝbringΝchangesΝabout – changes that will either allow the
ADB to cooperate with AIIB on equilibrant footing, or even as a junior partner?
To put it differently, whilst ADB has adopted the rhetoric of a collaborative future
with AIIB, which is challenging the USA-Japan hegemony as much as the Bretton Woods
institutions, the reform announcements by the ADB can be interpreted as attempts to reaffirm
it’sΝrelevanceΝwithinΝtheΝAsia-Pacific region – a proclamation of relevance at times when its
influence and thus relevance seems to be declining. But as we have seen this is in direct
oppositionΝ toΝ theΝ Japanese’Ν government’sΝ visionΝ linkingΝ ADBΝ andΝ JICAΝ cooperation.Ν NotΝ
surprisingly there is an uneasiness within the ADB that AIIB will be a rival and destabilise
and even endanger bothΝ Japan’sΝ andΝ USA’sΝ strongΝ holdΝ onΝ theΝ ADBΝ asΝ wellΝ asΝ ADB’sΝ
relevance in the Asia-Pacific region. (Chin 2014).
TheΝquestionΝofΝADB’sΝcooperationΝwithΝAIIBΝremainsΝaΝvexedΝone.ΝThereΝisΝrhetoricΝ
to collaborate, and at the same time the merger of above cited DF and ORC ADB funds is in
aid of improving lending for infrastructure development in the region. If this is the case, then
a strong argument may be made that ADB will enter into completion rather than cooperation
with AIIB. At best ADB and AIIB will enterΝaΝphaseΝofΝ‘co-opetition.’
The question is can ADB really become internally as well as externally more flexible?
Given it Japanese organizational culture, where flexibility is not at the forefront of change
management, only history will show. But does ADB have time on its side to enact new
flexible procedures and processes? The answer is most likely in the negative. One of the
43
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
reasons is that after its success to attract a significant number of G20 countries AIIB is in a
strong position to start operating by end of 2015. The G20 AIIB member countries have the
know-how and the ability to overseas the setting up the AIIB and subsequently effective and
efficient implementation of infrastructure project.
In the end, this raise sharp questions about what in the end ADB can do about this
perennial problem of being stuck between two major but utterly different political and
economic powers? Furthermore, can ADB continue to remain relevant in a world of
competing economic ideologies, and will the day soon come when, like it or not, that ADB
will be forced to reveal which way to turn? To answer these questions, we need to consider
that China has no apparent fundamental reason to form the AIIB except to firmly establish
itself as an economic and political power with the Asia-Pacific region. If this means to
compete directly with ADB and the USA-Japan hegemony embedded within the ADB and the
WB so be it. There are compelling arguments to suggest that ADB will lose at least in part its
relevance as the major Asia-Pacific regional MDB, if for no other reason than AIIB has been
successful in securing a membership of some very wealthy economies from MENA region,
which are not ADB member countries. Thus the financial future for AIIB infrastructure
projects seems to be secured – perhapsΝmoreΝsoΝthatΝtheΝADB’sΝevenΝwithΝtheΝmergerΝofΝitsΝ
two above-mentioned and JICA funds.
Against this background a question is will AIIB focus on competing with the ADB by
duplicating the ADB agenda? The response, from our perspective has to be in the negative.
Our reason for this assessment is that ADB as the regional MDB does not have the financial,
physical or human resources to meet Asia-Pacific’sΝ entireΝ infrastructureΝ requirements.Ν
(Rachman 2015). It is also needs to be pointed out that ADB provides loans for infrastructure
development at market rate (i.e. LIBOR plus a service fee). If the AIIB chooses to compete
on the basis of rate charged then ADB's efficacy and relevance, as a lender, would be
rigorously compromised. Thus the question if ADB will be able to compete with AIIB is
superfluous. It will depend on AIIB how much ADB competition it will tolerate.
InΝadditionΝtoΝAIIB,ΝChinaΝisΝpursuingΝotherΝinitiatives,ΝwhichΝpotentiallyΝwillΝaffectΝADB’sΝ
relevance. Here we are referring to the above-mentioned NDB, and the Silk Road Fund
(SRF). Although the discussion concerning the potential impact of NDB and the SRF on
ADB’sΝrelevanceΝisΝbeyondΝtheΝscopeΝofΝthisΝpaper,ΝitΝneverthelessΝneedsΝtoΝbeΝmentioned.ΝOurΝ
thesis is that unless ADB seeks mutually acceptable cooperation with AIIB its relevance as
the main regional MDB will be diminished. This may also affect future collaboration with the
NDB and the SRF. However to seek and enact such collaborations ADB needs to secure the
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
44
support and agreement of its major membership countries, namely the governments of Japan
and USA respectively. If the current stance of the USA-Japan alliance is any indication, ADB
will be hard pressed to maintain its current relevance.
To put it differently, our thesis is that AIIB has a significant advantage by the virtue of
itsΝ memberΝ economies,Ν China’sΝ experienceΝ inΝ infrastructureΝ developmentΝ ofΝ unprecedentedΝ
magnitude,Ν China’sΝ andΝ AIIBΝ memberΝ countries’Ν financialΝ capacityΝ toΝ fundΝ hugeΝ
infrastructure projects, and coupledΝ withΝ Japan’sΝ governmentΝ apparentΝ intransigencyΝ toΝ cooperate with China-led AIIB. Therefore the existing relevance of ADB in the Asia-Pacific
region will over time be significantly reduced.
7. References
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Bank 2008-2020. Manila: ADB. 2008.
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ADB.Ν‘NewsΝReleasePresidentΝNakaoΝSeeksΝtoΝBuildΝAΝStronger,ΝBetter,ΝFasterΝADB’.Ν
News Release 4 May 2015. Retrieved on 15th May 2015 from
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Bermingham,ΝF.Ν‘ADBΝwillΝreformΝlendingΝtoΝassistΝpoorerΝmembers.’ΝGlobal Trade
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Birdsall, N., Morris, S., and Rueda-Sabater, E. The ADB’s Bold Move and What it
Can Mean for the MDBs. Center for Global Development. 2015. Retrieved on
15th May 2915 from http://www.ifad.org/events/ifi_trends/cgd.pdf
Chanda,ΝN.Ν‘MakingΝofΝaΝNewΝWorldΝOrder.’ΝInΝYaleGlobal Online. 3rd April 2015.
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Doyle, N., Martinez Arranz, A. and Winand, P. New Europe, New World?: The
European Union, Europe and the Challenges of the 21st Century. Brussels: P.I.E.
Peter Lang. 2015
Garcia-Herrero,ΝA.,ΝandΝCasnova,ΝC.Ν‘The AIIB: a little competition never hurts
anyone.’ΝInΝBBVA Research, 14th April 2015. Retrieved on 2nd May 2015 from
https://www.bbvaresearch.com/wpcontent/uploads/2015/04/20150413_AIIB_ v41.pdf
Goodman,ΝM.ΝP.Ν‘AΝCaseΝforΝSmarterΝEconomicΝStatecraft.’ΝInΝGlobal Economic
Monthly. Vol. IV, Issue 4, April 2015. Retrieved on 4th May 2015 from
http://csis.org/files/publication/150424_global_economics.pdf
Harvey, D. The condition of postmodernity: An enquiry into the origins of cultural
change. Oxford, England: Basil Blackwell. 1989
Huang,ΝC.Ν‘57 nations approved as founder members of China-ledΝAIIB.’ΝInΝSouth
China Morning Post. 27th April 2015. Retrieved on 18th May 2015 from
http://www.scmp.com/news/china/diplomacy-defence/article/1766970/57-nationsapproved-founder-members-china-led-aiib
Hudson, M. Global fracture: The new international economic order. London: Pluto.
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Kihara,ΝL.ΝandΝSieg,ΝL.Ν‘JapanΝunveilsΝΡ110ΝbillionΝplanΝtoΝfundΝAsiaΝinfrastructure,Ν
eyeΝonΝAIIB,’ΝReuters, Markets, May 21, 2015, Retrieved on 21st May, 2015
from:http://www.reuters.com/article/2015/05/21/us-japan-asia-investmentidUSKBN0O617G20150521
Labrousse, A. and Weisz, J-D. (eds). Institutional Economics in France and
Germany: German Ordoliberalism versus the French Regulation School.
Berlin/Heidelberg/New York: Springer. 2001
Mathew,ΝJ.ΝΝ‘JapanΝfindsΝAIIB-ADB cooperation difficult due to difference in rules.
‘InΝInternational Business Times. 24th March 2015. Retrieved on 14th May 2015
fromhttp://www.ibtimes.co.uk/japan-finds-aiib-adb-cooperation-difficult-due-differencerules-1493250
Okano-Heijmans,ΝM.,ΝandΝWaardenburg,ΝD.Ν“ΝTheΝAsianΝDevelopmentΝBankμΝWhat’sΝ
inΝitΝforΝEuropeς”ΝClingendael Report. The Hague: Netherlands Institute of
International Relations. 2015
Perlez,ΝJ.Ν‘U.S.ΝOpposingΝChina’sΝAnswerΝtoΝtheΝWorldΝBank.’ΝInΝThe New York
Times, 9th October. 2014
Pollmann,ΝM.Ν‘WillΝJapanΝCooperateΝWithΝChina'sΝInfrastructureΝBankς’ΝInΝThe
Diplomat. 27th March 2015. Retrieved on 10 May 20015 from
http://thediplomat.com/2015/03/will-japan-cooperate-with-chinas-infrastructure-bank/
Pongsudhirak,ΝT.Ν‘China’sΝaspiringΝglobalΝleadership’.ΝInΝEASTASIFORUM. 25th
November
2014.
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on
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may
2015
from
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Raby,ΝG.Ν‘AIIBΝChina’sΝcotillion’.ΝInΝAustralian Strategic Policy Institute. 28th April
2015. Retrieves on 6th May 2015 from http://www.aspistrategist.org.au/aiib-chinascotillion/
Rachmann,ΝG.ΝΝ‘China’sΝMoneyΝMagnetΝPullsΝinΝUSΝAllies’.ΝInΝFinancial Times.
March 16, 2015
Reisen,ΝH.Ν‘HowΝtheΝNewΝAIIBΝDwarfsΝtheΝAsianΝDevelopmentΝBank.’ΝInΝThe
Globalist. 2015. Retrieved on 10th May 2015 from http://www.theglobalist.com/aiib-todwarf-adb-loan-portfolio/
Rudolf. M., Huotari, M., and Buckow, J. Chinas Schatten-Aussenpolitik:
Parallelstrukturen fordern die international Ordnung hreaus. In MERICS China Monitor,
No. 19; Berlin 23rd September
Shambaugh, D. ‘China Goes Global: the Partial Power . New York: Oxford
University Press
Trading Economics. China Foreign Exchange Reserves. 2015Retrieved on 16th May
2015 from http://www.tradingeconomics.com/china/foreign-exchange-reserves
Totten,ΝJ.Ν‘BRICSΝNewΝDevelopmentΝBankΝThreatensΝHegemonyΝOfΝU.S.ΝDollar,Ν
‘Forbes, Opinion, 2014. Retrived on 22nd May, 2015 from:
http://www.forbes.com/sites/realspin/2014/12/22/brics-new-development-bank-threatenshegemony-of-u-s-dollar/
Vestergaard,ΝJ.ΝandΝWade,ΝR.ΝH.Ν‘ProtectingΝPowerμΝHowΝWesternΝStatesΝRetainΝtheΝ
DominantΝVoiceΝinΝtheΝWorldΝBank’sΝGovernance.’ΝInΝWorld Development. Vol.
46; pp. 153-164, 2013.
Wolf, A. and Rogowsky,ΝR.ΝA.Ν‘TheΝAsianΝInfrastructureΝandΝInvestmentΝBankμΝ
QuestionsΝthatΝshouldΝbeΝasked.’ΝInΝE15 Initiative, April 2015. Retrieved on 5th
May 2015 from http://e15initiative.org/blogs/asian-infrastructure-and-investment-bankquestions-that-should-be-asked/
WorldΝBankΝ(2015a).Ν‘World Development Indicators database’, World Bank, 14
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April
2015.
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2015
http://databank.worldbank.org/data/download/GDP.pdf
World Bank, (2015b). Gross domestic product ranking table. Retrieved on 10th May
2015 from http://data.worldbank.org/data-catalog/GDP-ranking-table
from
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Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
The Relevance of Asian Development Bank: Existing in the Shadow of the
Asian Infrastructure Investment Bank
Abstract:
This paper analyses the potential impact of the China-led Asian Infrastructure Investment
Bank (AIIB) on the Japan-USA-led Asian Development Bank (ADB). Given the financial
strengths and the technical know-how of the newly formed AIIB there is a question about the
future role and indeed relevance of the ADB. The questions canvassed in this article refer to
ADB’sΝ abilityΝtoΝ changeΝandΝadaptΝ toΝ theΝnewΝsituation,Ν whereΝitΝisΝ noΝlongerΝtheΝdominant
multi-lateral development bank (MDB) in the Asia-Pacific region. Against this background
the discussion turns to issues concerning the geo-political sphere of influence of the ADB and
AIIB and analyses the ADB – AIIB geo-political equilibrium in the Asia-Pacific region.
SubsequentlyΝthisΝpaperΝdiscussesΝfactorsΝthatΝmayΝimpactΝonΝADB’sΝfutureΝrelevance.Ν
Keywords:
Foreign Aid, Development, Development Bank, Asian Infrastructure Investment Bank, ADB,
Asia, Geopolitics.
JEL Subject Descriptors:
O190 International Linkages to Development
F35 Foreign Aid
Professor Viktor Jakupec1 and Dr Max Kelly2
1
Professor Jakupec: Honorary Professor, Faculty of Arts and Education, Deakin University, Warrnambool,
Australia. Email: viktor.jakupec@deakin.edu.au
2
Dr Max Kelly, Senior Lecturer, International and community Development, Faculty of ARts and Education,
Deakin University, Warrnambool. Email: max.kelly@deakin.edu.au
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
1.
32
Introduction
In March 2015 PR China announced the de facto formal inauguration of the Asian
Infrastructure Investment Bank (AIIB). From its beginnings AIIB has been seen by many
(Reisen 2015; Mathew 2015; Wolf and Rogarowsky 2015; Garcia-Herrero and Casnova
2015) as a competitor to the traditional Washington-based (Bretton Woods) financial
institutions, namely the International Monitory Fund (IMF) and the World Bank (WB)
including its member institutions such as International Bank for Reconstruction and
Development (IBRD) and the International Finance Corporation (IFC).
However, since the China-led AIIB has not declared any ambition to operate beyond
Asia-Pacific, the competition will be contained within this region. To restate, although AIIB
may become a competitor for the above mentioned IMF, WB, IBRD and IFC, its impact will
potentially be geo-politically limited. However, the same may not hold true when it comes to
the Japan-USAΝ ledΝ AsianΝ DevelopmentΝ BankΝ (ADB).Ν TakingΝ intoΝ considerationΝ China’sΝ
economicΝpower,ΝtheΝsurgeΝforΝmembershipΝfromΝmajorΝeconomiesΝandΝChina’sΝgrowingΝgeopolitical influence, there is a serious question about the future relevance of ADB, perhaps
signalling the end of the Japan – USA hegemony in the Asian development investment arena.
The Japan – USA hegemony governing the ADB enabled it to become an effective
ally of the above mentioned Bretton Woods institutions and to operate alongside these in joint
development aid agendas and geo-political self-interestsΝ ofΝ both,Ν theΝ USAΝ andΝ Japan’sΝ
governments. Under the current governance and economic ideologies ADB became a
significant player in the Asia-Pacific development aid arena, in particular Official
Development Assistance (ODA).
There is widespread agreement among regional development specialists and
commentators that since the establishment of the AIIB in 2015 China will assertively advance
in the Asia-Pacific infrastructure aid arena (e.g. Raby 2015; Goodman, 2015; Chanda, 2015).
Having established an international membership beyond Asia-Pacific, it is currently in the
process of finalising its various structures, policies and procedures necessary for its
administration.
In thisΝ articleΝweΝwillΝoutlineΝtheΝbackgroundΝofΝ AIIBΝformation,ΝandΝcanvasΝADB’sΝ
ability to change and adapt to the new situation, where it is no longer the dominant multilateral development bank (MDB) in the Asia-Pacific region. Against this background we will
discuss the geo-political sphere of influence of the ADB and AIIB respectively with a focus
on potential equilibrium between these two MDBs in the Asia-Pacific region. Subsequently
thisΝpaperΝdiscussesΝfactorsΝthatΝmayΝimpactΝonΝADB’sΝfutureΝrelevance.
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Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
2. AIIB: An Introduction
The AIIB was officially launched on 24th October 2014 in Beijing. Its purpose is to provide
infrastructure project loans to developing countries within the Asia - Pacific region. It will
focus on energy, transportation, telecommunications and other infrastructures. The
headquarters are to be in Beijing and is envisaged that AIIB will be operational by the end of
2015. However, much is still to be accomplished, such as establishing and agreeing on a
Charter. The Articles of Agreement are expected to be ready for signing in June 2015 nd the
Bank operational by the end of 2015 (http://www.aiibank.org/html/aboutus/AIIB/).
AIIB’sΝfoundingΝmembershipΝconsistsΝofΝ5ιΝregionalΝandΝnon-regional economies and
includesΝ 16Ν ofΝ theΝ world’sΝ 20Ν largestΝ economies.Ν ConspicuouslyΝ absentΝ areΝ firstΝ andΝ thirdΝ
largest economies namely U.S.A. and Japan, and the 11th and 15th largest economies namely
Canada and Mexico respectively (World Bank, 2015a).
Reportedly, founding members will initially contribute up to one-fifth of the AIIB's USD50
billion authorized capital. This will eventually be raised to USD100 billion, which is about
ι0%ΝofΝADB’sΝsubscribedΝcapitalΝofΝapprox.ΝUSDΝ160ΝbillionΝ(seeΝADBΝ2015).
Non-regional countries will be restricted to hold a total of 25 % of AIIB shares. That
leaves China and other Asian economies with 75%, which shall be distributed on a basis of
the member economic size. This means that as China as the largest Asian economy and the
absence of Japan as the second largest Asian economy, the former, by default will receive the
single largest share quota. In other words although each Asian member would be allocated
their share of 75%, China will hold power, whereas the Germany, UK, France and Italy would
receive the largest share quota from the 25% quota allocated to non-Asian member
economies.
The exact method to determine the proportional allocation of national shareholdings
had yet to be agreed to. The distribution could be based on a country's nominal GDP or its
GDP calculated on a purchasing-power-parity (PPP) basis, or a combination of these two.
PPP would give more weight to developing rather than to developed. Since the majority of
75% of shares will go to developing countries it will make little difference as far as China is
concerned.
The formation of the AIIB has to be seen in the context of discontent of significant
economies, and in particular BRICS (Brazil, the Russian Federation, India, PR China and
South Africa) countries with lack of reform within Bretton Woods institutions and the IMF in
particular.Ν Ν InΝ 2013Ν theΝ LeadersΝ ofΝ theΝ BRICSΝ approvedΝ theΝ establishmentΝ ofΝ theΝ ‘NewΝ
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
34
DevelopmentΝ BankΝ (NDB)’Ν (informallyΝ theΝ BRICSΝ Bank).Ν ThisΝ operatesΝ onΝ aΝ moreΝ globalΝ
platform and is therefore beyond the scope of this article. The AIIB is a further contribution to
a significant shift away from the Washington domination of development funding and
investment in infrastructure, and in the eyes of some, a direct threat to the hegemony of the
US dollar system in world financial flows (Totten, 2015). However, either way China will
have support, contribution and input from major Western European countries for the AIIB, as
well as from all the founding members of the New Development Bank (NDB), and at the
same time, China will have the largest shareholding.
OnΝ theΝ basisΝ ofΝ China’sΝ AIIBΝ shareΝ quota,Ν theΝ significantΝ numberΝ ofΝ importantΝ
economies that have joined AIIB and the potential support from the NDB it could be argued
that forΝ allΝ intentionsΝ andΝ purposes,Ν AIIBΝ isΝ anΝ instrumentΝ forΝ China’sΝ questΝ forΝ itsΝ geopolitical sphere of influence. As the second largest global economy it is positioning itself geopolitically as not only to compete with ADB and WB but also to prevent them from
expandingΝ furtherΝ withinΝ China’sΝ primaryΝ geo-political sphere of influence, namely Asia Pacific. (Rudolf, Huotari and Buckow, 2014)
3. Quest for the geo-political sphere of influence
Despite the strong pressure exerted by the USA on its allies to desist joining the AIIB, a
significant number of countries have joined. Among the USA traditional allied countries who
became AIIB founding members are Australia, France, Germany, Italy, UK, New Zealand,
most of the Gulf countries, a number of MENA countries, and South Korea, to name but a
few. The USA objections did little to curb the number of applications for founding
membership of AIIB (Perlez, 2014). At the closure of application for foundation membership
AIIB had accepted 57 countries and founding members. It is envisaged that other countries
will join as ordinary members.
Furthermore, it is worth mentioning that 37 of 67 ADB member countries have joined
the AIIB (see ADB 2014). The notable exceptions are Japan and USA. In addition there are
20 other non-ADB member countries that have joined AIIB as founding members bringing
the total AIIB founding member countries to 57. (see Huang 2015). Given the significant
number of dual membership the unanswered question of how long will there be a political,
financial and economic incentive for individual countries to contribute to both the AIIB and
ADBςΝ ThereΝ areΝ twoΝ questions.Ν Firstly,Ν givenΝ theΝ currentΝ ‘aid-for-trade’Ν andΝ ‘value-formoney’ΝagendasΝamongstΝ manyΝdonorΝcountries,ΝthereΝisΝ aΝquestionΝofΝwhetherΝexisting and
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Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
future pledges of support to the ADB will be undermined by pledges to the AIIB and will
support equilibrium between ADB and AIIB be established and maintained by dual member
countries? In other words, will ADB member countries decrease their support to ADB, for
example through co-financing of infrastructure projects and reallocate their funding towards
the AIIB? The answers to these questions are to be seen.
Let us briefly turn to the membership issues. It may be noteworthy that Japan is
virtually the only major Asian economy, which has not applied for AIIB membership. In fact
Japan has pledged a whopping $110 Billion to Asian Infrastructure development (exceeding
the capitalisation of the AIIB by $10 Billion) of which around half will go to the ADB
(Kihara and Seig, 2015). Others, such as Taiwan lodged an application, but were rejected.
There may be of course the opportunity for Taiwan and others to join at a later date as an
ordinary member country. Other non-AIIB Asia-Pacific countries, which have not applied
include Iraq, Syria, Afghanistan and Yemen (perhaps due to major political and civil unrests),
and Turkmenistan, which has never aspired to be a member of any multilateral organization.
In addition there are three Asian–Pacific countries which did not apply. These are Papua New
Guinea, Fiji, Bhutan and Timor-Leste, ranking according to WB GDP tables as the worlds
116thth, 157th, 168th and 174th economies respectively (see World Bank 2015b). Absent from
the AIIB membership are also Kiribati (ranked 191), Marshal Islands (ranked 190),
Micronesia Federated States (ranked 187), Palau (GDP ranked 198), Samoa (ranked 181),
Solomon Island (ranked 176), Tonga (ranked 186) and Vanuatu (ranked 180), all of which are
ADB member countries. By not joining the AIIB, Japan and its allies may have isolated
themselves from having any influence in the AIIB. Of course the counterargument may be
that Japan may have strengthened its hold on the ADB.
However speculative, and as stated above it may be argued that AIIB is an instrument
ofΝ interventionΝ byΝ ChinaΝ asΝ theΝ world’sΝ secondΝ largestΝ economyΝ toΝ keepΝ theΝ traditionalΝ aidΝ
agencies such as ADB, WB and IMF at bay and to prevent them from expanding further
withinΝChina’sΝprimaryΝgeo-political sphere of influence, namely Asia – Pacific. AIIB is also
a potential instrument for China to receive strong support from the AIIB member economies
to include the Yuan in the IMF's currency basket so as to reflect its economic strength on the
world stage.
Thus the formation of AIIBΝisΝhighlyΝsignificantΝforΝChina’sΝgeo-political influence in
the Asia-Pacific region. The motives are both economic and political. The former is based on
Asia’sΝ economicΝ growth.Ν ThatΝ isΝ toΝ attainΝ itsΝ fullΝ economicΝ capacityΝ AsiaΝ requiresΝ overΝ theΝ
next 10 years infrastructure investment of about USD 1 trillion annually. It is questionable if
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
36
the WB or the ADB can begin to meet these targets due to a lack of capital and lack of
expertise. On the other hand, there is a potential that China, based on the experience and
achievement in building its own infrastructure in an unprecedented short period of time, may
be able to do it. Furthermore, China has the world largest foreign exchange reserves,
approximately four trillion USD (Trading Economics 2015).
As far as political motivation is concerned, China is cognizant of the advantages that
mayΝemergeΝfromΝleadingΝaΝregionalΝinfrastructureΝ‘project’ΝonΝsuchΝanΝenormousΝscale.ΝChinaΝ
will gain massive strategic politico-economic advantages in terms of consolidating its position
asΝAsia’sΝeconomicΝcentreΝasΝwellΝasΝadvancingΝitsΝcredentialsΝasΝAsia-Pacific’sΝgeo-political
leader. This has been a generally recognized as an important goal of China. (Pongsudhirak,
2014; Shambaugh, 2013) and is evident from the reactionΝofΝtheΝUSAΝandΝJapanΝtoΝChina’sΝ
ambition to establish the AIIB. That is, USA is very much cognizant how much its leading
role in the WB and its influence in the ADB contribute to its strategic and political interests in
Asia-Pacific. Both USA and Japan understand fully that China, through AIIB, may challenge
their economic and political primacy in Asia-Pacific and at the same time enabling China to
take a greater share of regional politico-economic leadership. This is precisely, what the USA
and Japan tried to avoid [Westergaard and Wade 2013].
Assuming that AIIB will challenge the Japan-led ADB supremacy as the major aid
lenders in the region, the question is how will ADB respond not only immediately and in the
medium term but also and more importantly in the future? More imminent is the question how
the USA and Japanese governments will respond through their instrumentalities, namely ADB
and what affect it may have on the developing nations in the region?
As an immediate response by refusing to join the AIIB both USA and Japan forfeited
their opportunity to participate in the governance of this new institution. Subsequently they
jeopardiseΝtheirΝownΝandΝADB’sΝabilityΝtoΝshapeΝtheΝAsian-Pacific development agenda to the
same extent as it was possible in the pre-AIIB era. Furthermore by refusing to join the AIIB,
Japan and USA may have excluded their private enterprise to participate as contractors in
AIIB funded projects. Given this situation, China, through the AIIB, appears to be well on its
way to extend and strengthen its geo-political sphere of influence.
4. The Question of an AIIB - ADB Equilibrium in the Asia-Pacific Region
The ADB President stated that the ADB faces a number of internal and external challenges.
(ADB News Release, 2015). Perhaps the biggest external challenge is the formation of the
AIIB. In order to maintain equilibrium, ADB needs to make important strategic and
37
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
operational decisions. But most importantly ADB needs to focus on its relevance vis-à-vis
AIIB. The important question is under what conditions can ADB retain its current relevance
in light of the AIIB? To put it differently under which conditions can ADB and AIIB
successfully co-exist?
Having recognized the importance of AIIB, the ADB took the initiative and
announced that it is looking forward to co-operating with AIIB. (Pollmann 2015). There are
two issues, which need to be taken into account. One, there is no clear indication what type of
co-operation the ADB has envisaged and under which conditions. Two, whatever cooperation may be envisaged, it stands to reason that ADB will have to adjust by taking into
consideration the political and economic agenda of the AIIB. In other words, it is highly
unlikely that the AIIB will adjust to placate the ADB, thus the onus is on the ADB.
Our thesis is that although it could be argued that ADB will adjust and co-operate with
AIIB, there are three assumptions speak against this. Firstly co-operation will require ADB to
be flexible to accommodate AIIB development aid approaches. ADB may not be able to
maintain its existing stringent aid governance structure. Second, ADB usually follows the
BrettonΝWoodsΝinstitutions’ΝdevelopmentΝaidΝagendas.ΝTheseΝmayΝnotΝbeΝacceptableΝtoΝAIIB.Ν
Third, it is highly unlikely that a China-led AIIB will embrace a neo-liberal economic
ideology embraced by the ADB.
Although the first assumption is an ADB internal matter, which may be resolved, the
other two assumptions are externally governed ideological paradigms and thus inter-related.
To harmonise these two with the ideological paradigms governing the AIIB may prove to be a
difficult,ΝifΝnotΝanΝinsurmountableΝproblemΝforΝtheΝADB’sΝdesireΝtoΝco-operate with AIIB.
The ‘flexibility’ factor
ADB’sΝinternalΝorganizationalΝandΝexternalΝaidΝgovernanceΝstructures do not well support an
argument for flexibility. The ADB differs from other MDBs in many aspects. One important
one is that ADB has distinct Japanese organizational features and culture. This is in stark
contrast with most other MDBs, which ascribe to Western management and organisational
culture. There is evidence that ADB (a) has a strong bureaucratic and rigorous hierarchical
organisation structures modelled to a large extent on Japanese Ministry of Finance (OkanoHeijmans and Waardenburg 2014); (b) rigid lending terms and eligibilities; (c) intransigent
engagement with those borrowers, whose economic achievements have not reached their full
potential.Ν InΝ shortΝ thereΝ areΝ signsΝ ofΝ inflexibilityΝ withinΝ ADB’sΝ organisationalΝ culture,Ν
governance, management and administration (Birdsall, Morris and Rueda-Sabater 2015)
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
38
From this standpoint it could be argued that ADB lacks the flexibility required to
coexistΝwithΝAIIB.ΝToΝputΝitΝdifferently,ΝthereΝisΝaΝneedΝtoΝacknowledgeΝthatΝADB’sΝprinciplesΝ
and the objectives of its policies have served the developing countries in the region
successfully. Its current strategies and structures, based on stringent sets of procedures may
not be an effective way to co-exist with AIIB with its potentially less rigorous approaches and
strategies.
ADB and the predominance of the Bretton Woods agenda
To be sure, the Bretton Woods system includes the WB, the IMF, and the World Trade
Organization (WTO). Although ADB is not part of the Bretton Woods institutions, it has
followed to a large extent the Bretton Woods agenda.
Our thesis is that over the last seven decades the Bretton Woods paradigms have
significantly contributed to the advent and maintenance of political and economic positions in
which developing countries globally verge on colonies of the global financial and corporate
interests. Developing nations find themselves continually depend on economic and other
ODA assistance that extend and enforce their dependency on the same institutions that impose
conditionality to their own benefit, usually irrespective of the developing nations societal,
economic and political needs. Such dependence may weaken the recipient countries relative
economicΝpositionΝinΝrelationΝtoΝpowerfulΝMDB’s.Ν(HudsonΝ2005νΝHarvey,Ν19κ9).Ν
Thus we maintain that since ADB is by virtue of the dominant Japan-USA hegemony
lock-stepped with the WB, it follows, or needs to follow the Bretton Woods agenda. As such
ADB holds significant and unfettered economic and politico-economic influence over the
governments of borrowing countries. Like the Bretton Wood institutions, which have global
monopoly, ADB has rarely, if at all, been confronted by competition. If this stands to reason
than it could be argued that in light of the AIIB, there is a potential dilemma for ADB. The
problemΝ forΝ theΝ ADBΝ isΝ thatΝ AIIBΝ couldΝ challengeΝ theΝ standardsΝ thatΝ theΝ BrettonΝ Woods’Ν
institutions have established over the last 70 years.
However with the emergence of the AIIB a competitive environment for ADB has
been created. Not being used to competition, it is uncertain how ADB will react. The
transition from a status of monopoly as a regional MDB to a competitive MDB organisation
will be a challenging undertaking, which requires flexibility and change of the organisational
culture.
The problematic as we see it is that although institutions that follow the Bretton Woods
agenda impose the neo-liberal paradigm of competition and free-market enterprise on others,
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Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
they do not allow or at least resist any insurgence into their monopoly status. It could be
argued that AIIB will challenge and provide alternatives to the Bretton Woods paradigm.
The clash of economic ideologies
If our argument, that the China-led AIIB will challenge and offer alternatives to the neoliberal agenda of the Bretton Woods institutions and their followers, such as the ADB, it
stands to reason then there is a potential of a clash of economic ideologies. To be sure,
Bretton Woods institutions such as the WB, IMF and WTO, as well as ADB by association,
are stalwarts of neo-liberalism.
In contrast China and some other S-E Asian countries such as Vietnam embrace a
‘socialist market economy’.ΝPerhapsΝmoreΝtoΝtheΝpointΝisΝtheΝfactorΝthatΝsomeΝEuropeanΝAIIBΝ
memberΝ economiesΝ likeΝ GermanyΝ withΝ itsΝ ‘ordoliberalism’,Ν andΝ ‘Regulation Theory’
(Labrousse and Weisz 2001; Doyle, Martinez Arranz and Winand 2015) can be seen as a
basisΝforΝ‘socialist market economy’,ΝwhichΝareΝinΝstarkΝcontrastΝtoΝtheΝBrettonΝWoods’Νneoliberalism.
Considering that ordoliberalism and regulation theory is essentially a theory about
making a national economy work efficiently rather than about organising the global economy.
This allows developing countries to pursue economic policies and developments, which are in
their own national interests, rather than the MDBs neo-liberal global interests. To explain, the
fundamental theoretical basis of ordoliberalism and regulation theory is that governments
should, as necessary, interfere into markets in such a way that market outcomes mirror the
theoretical outcome in a competitive market. In essence it is based on liberal state
intervention.
Taking into consideration the above stated thesis that ADB is in lockstep with WB,
which is the stalwart of neo-liberalism in the foreign aid and development, it is difficult to
imagine that a useful collaboration between ADB and the AIIB will emerge, unless one or the
other changes its economic ideology. Whilst ADB is unashamedly embracing a neo-liberal
economic ideology, there is no indication that AIIB will follow suit. China and other member
countriesΝhaveΝembracedΝaΝ‘socialist market economy’ΝandΝthereΝisΝlittleΝindicationΝthatΝthereΝ
is significant common ground.
The economic ideology of the Western aid agencies, especially those build in the
image of Bretton Wood system, such as the ADB have shut out many aid possibilities, by
making aid conditions rigid, inflexible and marginally efficient in delivering what the local
population in recipient countries need. China's perspective is the exact opposite: Loan
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
40
decision should be readily and promptly attained if there is an authentic need on both, the
donor’sΝandΝtheΝrecipient’sΝsides.
5. The ADB Relevance Factor
The above analyses raise the question about what ADB can do to retain its relevance in AsiaPacific region, whilst it is stuck between the WB as its major partner and AIIB as the new
competitor? AIIB and WB are after all two utterly different identities with different economic
ideologies and agendas. There is no simple answer to this question. On the one hand ADB has
already announced that it would like to collaborate with AIIB and on the other hand it remains
locked in with WB as its main partner. Thus can ADB continue to live and retain its current
relevance in a world of divided dependability? Is there a potential that one day in not too
distant future ADB will be forced to reveal where its cooperation focus lies? Given the
political constellation of the USA–Japan hegemony, which governs ADB, the most likely
scenario is that ADB will remain within the WB and Bretton Woods campus.
Furthermore,ΝtheΝpoliticalΝrealityΝunderneathΝADB’sΝgesturesΝofΝcooperationΝwithΝAIIBΝ
remainsΝaΝmajorΝissue.ΝJapan’sΝFinanceΝMinisterΝTaroΝAsoΝset,ΝatΝtheΝADBΝannualΝmeetingΝinΝ
Baku, Azerbaijan, a political agenda for the ADB, which has a direct impact on ADB-AIIB
relations.Ν TaroΝ AsoΝ foreshadowedΝ newΝ plansΝ toΝ increaseΝ Japan’sΝ fundingΝ forΝ infrastructureΝ
developmentΝ byΝ championingΝ Japan’sΝ plansΝ forΝ Asia-Pacific regional expansion. The
proposed plan according to Taro Aso is for Japan to harness the resources of the bilateral
Japan International Co-operation Agency (JICA) and resources from private enterprise, which
together will collaborate with the ADB by providing syndicated loans. (Bermingham 2015)
ADB cannot and will not move against the will of its political masters and thus such a
situation may well be encoded in the political atmosphere of possible competition, rather than
cooperationΝbetweenΝADBΝandΝtheΝAIIB.ΝAfterΝallΝADB’sΝallianceΝwithΝtheΝWBΝandΝtheΝUSA–
Japan hegemony has served it well. Thus it is foreseeable that the status quo will most likely
beΝmaintained.ΝADB’sΝdominantΝstrategyΝtoΝbeΝtheΝjuniorΝpartnerΝtoΝtheΝWBΝwillΝbeΝpotentiallyΝ
upheld.Ν TheΝ notableΝ changeΝ mayΝ beΝ ADB’sΝ accessΝ toΝ JICAΝ andΝ JapaneseΝ privateΝ enterpriseΝ
funds. Reinforcing the vision for the ADB, Taro Aso, was quoted as saying ‘We’re going to
promote a new initiative to encourage investments for quality infrastructure. We’ll also aim to
expand investments in infrastructure quantitatively.’ (Aso cited in Bermingham 2015) This
very much leads to the conclusion that ADB-JICA alliance will pursue competition rather
than cooperation with AIIB.
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Thus ADB is now entering a period of harsh realism facing the question of relevance
from within as much as from without. On the one hand the rhetoric from within its ranks
espoused by its President Takehiko Nakao about co-operation with AIIB is in strong contrast
ofΝtheΝplanΝchampionedΝbyΝJapan’sΝFinanceΝMinisterΝandΝDeputyΝPrimeΝMinisterΝTaroΝAso.Ν
Here ADB is wedged in between the vision of its President and the Chairperson of
ADB'sΝ BoardΝ ofΝ Directors,Ν andΝ Japan’sΝ planΝ forΝ futureΝ focusΝ ofΝ theΝ ADB.Ν TheΝ formerΝ isΝ atΝ
least rhetorically focusing on potential co-operation with AIIB the latter setting a scene for
competition between ADB and AIIB. InΝadditionΝthereΝisΝalsoΝtheΝthirdΝfactor,ΝnamelyΝChina’sΝ
realpolitik.
China’sΝrealpolitikΝseemsΝtoΝbeΝfocusedΝonΝusingΝtheΝAIIBΝtoΝadvanceΝitsΝownΝpoliticalΝ
and economic interests. But this is nothing unusual in the multi-lateral lending. After all ADB
is a witness to exploitation of power and a vehicle for strategic gains of Japan and USA. Let
us take a step back. It could be argued that China is seeking increased importance in the world
political and economic order. As such China requires and deserves geo-political space to
shape its own approach to global politico-economic leadership. If this means to leapfrog and
render existing agencies less relevant, so be it. If this stands to reason, then AIIB is just an
instrument – and not necessary the only one - China is using to secure its legitimate interests
as the second largest world economy.
There is another factor, which must be seen as problematic by the ADB, namely that
China has over years provided money for the developing countries not only in Asia, but also
the Pacific and Africa. However, since the focus of AIIB is on Asia-Pacific it enters into a
directΝregionalΝcompetitionΝwithΝADB,ΝwhichΝinΝturnΝbringsΝtoΝtheΝforeΝtheΝquestionΝofΝADB’sΝ
place in the Asia–Pacific region. Whatever the situation may be, ADB will be forced to reestablish itself in this new Asia-PacificΝaidΝ‘marketΝplace’.ΝThisΝrestitutionΝwillΝundoubtedlyΝ
beΝ influencedΝ byΝ theΝ AIIB.Ν ToΝ pretendΝ thatΝ itΝ willΝ beΝ ‘businessΝ asΝ usual’Ν mayΝ wellΝ leadΝ toΝ
ADB being rendered marginally relevant or even irrelevant. There are signs of such reestablishments.ΝADBΝPresidentΝTakehikoΝNakao,ΝannouncedΝtheΝmergerΝofΝtwoΝofΝtheΝbank’sΝ
majorΝfinancialΝinstruments,ΝnamelyΝtheΝmergerΝofΝtheΝADB’sΝAsianΝDevelopmentΝFundΝ(DF)Ν
lendingΝ operationsΝ (i.e.Ν ADB’sΝ concessional lending mechanism) with its ordinary capital
resources (OCR i.e. lending mechanism for middle-income countries at quasi market-rates).
This is in aid to better respond to the needs of a rapidly changing Asia-Pacific region as well
as for better responsiveness by the ADB to the needs of a precipitously changing Asia-Pacific
region. There is a full recognition within the ADB that there is a need for ongoing
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
42
transformation, including scaling-up ‘…operations, and development of a new strategy
beyond 2020.’Ν(ADBΝNewsΝReleaseΝ2015νΝADBΝ200κ).Ν
Perhaps more to the point is the question is why ADB and indeed the WB are opposed
to the AIIB and why China has formed the AIIB? Of course the answer to the latter part of the
questionΝisΝthatΝChina’sΝmotivesΝareΝin part economic and in part political. If the above stands
to reason, the geo-political and economic impact of the establishment of the AIIB cannot be
disregardedΝnorΝcanΝitΝbeΝsetΝasideΝasΝjustΝ‘another’ΝdevelopmentΝaidΝagency.Ν
6. Concluding Thoughts
It is evident from the above discussion that the ADB is taking notice of the impact that AIIB
may have on its future relevance. There certainly appears to be a wish within ADB for a
change in the wake of the AIIB. For example, ADB is talking about increased flexibility, and
less about changes to its alliance with the Bretton Woods agenda and almost nothing about
changesΝtoΝitsΝeconomicΝideologicalΝorientation.ΝTheΝquestionΝisΝperhapsΝnotΝoneΝofΝtheΝ‘wish’Ν
butΝmoreΝaboutΝtheΝpoliticalΝ‘will’ΝtoΝbringΝchangesΝabout – changes that will either allow the
ADB to cooperate with AIIB on equilibrant footing, or even as a junior partner?
To put it differently, whilst ADB has adopted the rhetoric of a collaborative future
with AIIB, which is challenging the USA-Japan hegemony as much as the Bretton Woods
institutions, the reform announcements by the ADB can be interpreted as attempts to reaffirm
it’sΝrelevanceΝwithinΝtheΝAsia-Pacific region – a proclamation of relevance at times when its
influence and thus relevance seems to be declining. But as we have seen this is in direct
oppositionΝ toΝ theΝ Japanese’Ν government’sΝ visionΝ linkingΝ ADBΝ andΝ JICAΝ cooperation.Ν NotΝ
surprisingly there is an uneasiness within the ADB that AIIB will be a rival and destabilise
and even endanger bothΝ Japan’sΝ andΝ USA’sΝ strongΝ holdΝ onΝ theΝ ADBΝ asΝ wellΝ asΝ ADB’sΝ
relevance in the Asia-Pacific region. (Chin 2014).
TheΝquestionΝofΝADB’sΝcooperationΝwithΝAIIBΝremainsΝaΝvexedΝone.ΝThereΝisΝrhetoricΝ
to collaborate, and at the same time the merger of above cited DF and ORC ADB funds is in
aid of improving lending for infrastructure development in the region. If this is the case, then
a strong argument may be made that ADB will enter into completion rather than cooperation
with AIIB. At best ADB and AIIB will enterΝaΝphaseΝofΝ‘co-opetition.’
The question is can ADB really become internally as well as externally more flexible?
Given it Japanese organizational culture, where flexibility is not at the forefront of change
management, only history will show. But does ADB have time on its side to enact new
flexible procedures and processes? The answer is most likely in the negative. One of the
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reasons is that after its success to attract a significant number of G20 countries AIIB is in a
strong position to start operating by end of 2015. The G20 AIIB member countries have the
know-how and the ability to overseas the setting up the AIIB and subsequently effective and
efficient implementation of infrastructure project.
In the end, this raise sharp questions about what in the end ADB can do about this
perennial problem of being stuck between two major but utterly different political and
economic powers? Furthermore, can ADB continue to remain relevant in a world of
competing economic ideologies, and will the day soon come when, like it or not, that ADB
will be forced to reveal which way to turn? To answer these questions, we need to consider
that China has no apparent fundamental reason to form the AIIB except to firmly establish
itself as an economic and political power with the Asia-Pacific region. If this means to
compete directly with ADB and the USA-Japan hegemony embedded within the ADB and the
WB so be it. There are compelling arguments to suggest that ADB will lose at least in part its
relevance as the major Asia-Pacific regional MDB, if for no other reason than AIIB has been
successful in securing a membership of some very wealthy economies from MENA region,
which are not ADB member countries. Thus the financial future for AIIB infrastructure
projects seems to be secured – perhapsΝmoreΝsoΝthatΝtheΝADB’sΝevenΝwithΝtheΝmergerΝofΝitsΝ
two above-mentioned and JICA funds.
Against this background a question is will AIIB focus on competing with the ADB by
duplicating the ADB agenda? The response, from our perspective has to be in the negative.
Our reason for this assessment is that ADB as the regional MDB does not have the financial,
physical or human resources to meet Asia-Pacific’sΝ entireΝ infrastructureΝ requirements.Ν
(Rachman 2015). It is also needs to be pointed out that ADB provides loans for infrastructure
development at market rate (i.e. LIBOR plus a service fee). If the AIIB chooses to compete
on the basis of rate charged then ADB's efficacy and relevance, as a lender, would be
rigorously compromised. Thus the question if ADB will be able to compete with AIIB is
superfluous. It will depend on AIIB how much ADB competition it will tolerate.
InΝadditionΝtoΝAIIB,ΝChinaΝisΝpursuingΝotherΝinitiatives,ΝwhichΝpotentiallyΝwillΝaffectΝADB’sΝ
relevance. Here we are referring to the above-mentioned NDB, and the Silk Road Fund
(SRF). Although the discussion concerning the potential impact of NDB and the SRF on
ADB’sΝrelevanceΝisΝbeyondΝtheΝscopeΝofΝthisΝpaper,ΝitΝneverthelessΝneedsΝtoΝbeΝmentioned.ΝOurΝ
thesis is that unless ADB seeks mutually acceptable cooperation with AIIB its relevance as
the main regional MDB will be diminished. This may also affect future collaboration with the
NDB and the SRF. However to seek and enact such collaborations ADB needs to secure the
Journal of Regional Socio-Economic Issues, Volume 5, Issue 3, September 2015
44
support and agreement of its major membership countries, namely the governments of Japan
and USA respectively. If the current stance of the USA-Japan alliance is any indication, ADB
will be hard pressed to maintain its current relevance.
To put it differently, our thesis is that AIIB has a significant advantage by the virtue of
itsΝ memberΝ economies,Ν China’sΝ experienceΝ inΝ infrastructureΝ developmentΝ ofΝ unprecedentedΝ
magnitude,Ν China’sΝ andΝ AIIBΝ memberΝ countries’Ν financialΝ capacityΝ toΝ fundΝ hugeΝ
infrastructure projects, and coupledΝ withΝ Japan’sΝ governmentΝ apparentΝ intransigencyΝ toΝ cooperate with China-led AIIB. Therefore the existing relevance of ADB in the Asia-Pacific
region will over time be significantly reduced.
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